The State of Cryptocurrency Markets

The Cambridge Centre for Alternative Finance released The Global Cryptocurrency Benchmarking Study, an extensive research report on the state of crypto markets. I’m sharing here some of my notes, excerpts and the best charts that are worth highlighting. It’s a 144-page report, so below you’ll find some of the excerpts. This is by no means a comprehensive summary or in any way a complete reflection of the entire report. All credits go to the Cambridge Centre for Alternative Finance. It is because of their extensive research that I was able to write up these notes. Usually I place this part of my research in my Evernote. But I thought maybe writing them on Medium could help me organize my research while also helping those who are learning more about the industry as a whole. Every excerpt has a different level of depth. The research is not sorted so scroll through at your convenience.

Total crypto market cap nearly $25 billion in March 2017

  • There are up to 11.5 million active crypto wallets. Only 7.5% to 30.9% of the total number of wallets active.
  • Almost 2,000 people officially work in the crypto industry.

Bitcoin still controls the market but other tokens are emerging. Important to keep in mind that Bitcoin is only one application of the blockchain

  • Major four use cases for cryptocurrencies: a) Speculative digital asset/investment b) Medium of exchange c) Payment rail d ) Non-monetary use cases

The major crypto exchanges

92% of exchanges use some type of cold storage system

Challenges currently faced by cryptocurrency payment companies

A brief history of cryptocurrencies mining

As more computing power is added by miners, the difficulty of solving the ‘puzzle’ that allows miners to earn a reward increases. This led to the emergence of the first bitcoin mining pools in 2010, which apportion rewards across pool participants based on the share of computing power contributed to the pool by each miner. Coupled with the price increase and surge in general interest in cryptocurrencies, early adopters and engineers were incentivized to develop increasingly efficient mining hardware that vastly outperformed previous generations of mining equipment. This led to further increases in the difficulty of solving the puzzle and accelerated an arms race amongst miners to use the cheapest energy sources and the most efficient equipment to keep operations profitable. Today, mining has become a competitive and resource-intensive industry that features its own value chain.

Cumulative bitcoin mining revenues if immediately converted to USD…

The Politics of Mining In A Nutshell

Over time, more and more miners have connected to mining pools, meaning that pool operators largely decide which transactions to include in a new block. Mining pool operators also hold considerable power in terms of which protocol rules they want to support by running preferred client implementations. However, full nodes (and especially ‘economically relevant’ full nodes run by major cryptocurrency businesses) ensure that only valid blocks as defined by the protocol implementation they are running are added to the blockchain. This means that if a miner runs a protocol implementation that enforces different rules than the majority of full nodes, the later may reject the blocks produced by such miners. This may result in a scenario of two incompatible networks in which there is one chain backed by a considerable amount of computing power but not accepted by the ‘economic majority’, and a second chain that is considered valid by the ‘economic majority’ but not backed by as much computing power as before the chain ‘fork’.

Global Cryptocurrency Mining Map

Most miners seem happy with existing regulation or lack thereof

Operational risk factors for miners

Level of concern regarding general challenges affecting the industry